Business spending lifts but economists warn mining set to drop off

Economists say spending intentions for this year were weaker than anticipated, particularly in the mining sector.

Australian companies poured more money into their businesses than expected in the second quarter, but economists warn of clouds on the horizon as spending plans disappoint.

The latest Bureau of Statistics figures show total new capital expenditure increased by 4 per cent to just over $40 billion in the three months to the end of June.

On average, economists were expecting a rise of between 0.5 and 1 per cent.

Total spending on building and structures jumped by 7.1 per cent, led by a strong 10.2 per cent rise in mining sector investment, while manufacturing spending fell by 3.6 per cent.

The figures also show total investment in plants, equipment and machinery declined by 1.2 per cent in the quarter, dragged down by a 13.6 per cent drop in spending by mining companies, with investment by manufacturers falling by 11 per cent.

UBS chief economist Scott Haslem describes the result for last financial year as positive, but warns spending intentions for this financial year are weaker than expected.

"If we dig a little bit deeper we can see the intentions - the outlook for investment - has clearly been downgraded and I'd argue downgraded more than people would have expected," Mr Haslem said.

Actual spending for 2012/13 was confirmed at $160.5 billion, but the latest estimate of total spending plans for this financial year came in at $159.2 billion, dragged down by lower planned spending by mining companies.

"The mining story is showing a clear flattening out but we're not yet seeing any improvement in the investment intentions across our manufacturing or other sectors, which means there's no real offset to the loss of growth from the mining investment," Mr Haslem said.

Commsec economist Savanth Sebastian says it was the weakest upgrade to investment plans on record.

"Usually investment plans lift by around 10 per cent at this time of the year," Mr Sebastian said in a note to investors.

"But this time around business investment estimates only lifted by 2.3 per cent, marking the weakest upgrade to investment plans in records going back over 25 years."